Dow Jones Indexes and the Chicago Climate Exchange (CCX), the world’s first and North America’s only voluntary, legally binding integrated greenhouse gas emissions reduction, registry and trading s
Dow Jones Indexes and the Chicago Climate Exchange (CCX), the world’s first and North America’s only voluntary, legally binding integrated greenhouse gas emissions reduction, registry and trading system, are launching the Dow Jones/CCX European Carbon Index and Dow Jones/CCX Certified Emissions Reductions (CER) Index, which serve as benchmarks for participants seeking exposure to the European Union Emissions Trading Scheme and Kyoto Protocol Clean Development Mechanism (CDM), respectively. The two new indexes are the first in a series of global emissions indexes to be launched jointly by Dow Jones Indexes and CCX.
Emissions trading aims to reduce pollution using a market-based approach of providing economic incentives to companies that reduce their emissions beyond their target. In this system, also referred to as cap and trade, a government or other regulatory authority sets a cap on the amount of pollutants that can be emitted and distributes allowances, or credits, that represent the right to emit a specific amount. Companies that do not meet the cap buy credits from companies that emit below their specified amounts. The group as a whole meet the set environmental goal at least cost to society.
The European Union Emissions Trading Scheme (EU ETS) is the largest multi-country, multi-sector emissions trading program in the world. The Clean Development Mechanism is a program under the Kyoto Protocol that allows developed nations committed to reducing greenhouse gas emissions to invest in projects that reduce emissions in developing nations to offset the costs of lowering emissions in their own countries.
"Reducing greenhouse gases and other pollutants has become a major worldwide initiative that has drawn the participation of industrialized and emerging economies in key regions around the globe. Emissions trading has surfaced as the most cost-efficient means of achieving this goal and the Chicago Climate Exchange is well positioned to facilitate this trading on a global basis. The Dow Jones/CCX EUA and CER Indexes provide market participants with price gauges to assess their exposure to this growing asset class. We hope to expand our offerings for emissions-themed benchmarks in the future,’ said Michael A. Petronella, president, Dow Jones Indexes.
‘The launch of the Dow Jones/CCX EUA and CER Indexes highlights CCX’s commitment to build a robust market so that the private sector can play its critically important role in advancing environmental and social objectives,’ said Dr. Richard Sandor, chairman and chief executive officer, CCX. ‘This suite of index products will broaden the pool of participants in the market while furthering transparency. Our alliance with such a world-renowned brand as Dow Jones is a win-win for the growing worldwide emissions market.’
The Dow Jones/CCX European Carbon Index is composed of actively traded European Union Allowances (EUA) futures contracts on the European Climate Exchange. It measures the present discounted value of EUAs-the carbon credits issued in the European Union Emissions Trading Scheme, across different maturities. The Dow Jones/CCX CER Index measures the present discounted value of CERs-the carbon offset allowances issued by the United Nations under the Kyoto Protocol Clean Development Mechanism, across different maturities.
All contracts used in the indexes’ calculations are the European Climate Exchange Carbon Financial Instrument Futures listed on ICE Futures.
The Euribor interest rates are used to discount maturities of the nearby contract while the Euro Interest Swap rates are used to discount the December expiry contracts for the two subsequent years.
The indexes are weighted by the percentage of open interest that each contract has among the three included contracts on the last trading day of the previous quarter. The weightings of the underlying contracts for both indexes are rebalanced quarterly in April, July, October and January.
Unlike equities that give shareholders an ownership stake in a corporation, carbon futures contracts normally specify a certain delivery date of the underlying physical carbon spot. To avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as ‘rolling’ a futures position. The Dow Jones/CCX European Carbon and CER indexes are ‘rolling indexes’ that roll once a year in December over a four-day period.
The Dow Jones/CCX European Carbon and CER indexes are calculated in euro and values are published end of day. Estimated daily back-tested history for the Dow Jones/CCX European Carbon Index is available back to January 2, 2008; for the Dow Jones/CCX CER Index, data is available back to April 1, 2008.
